November 14, 2016
An Overview of The Cost Involved In Home Loan
Owning a home is a lifetime ambition for many. Arranging finances for your dream home from your own funds is a tad bit difficult; spiralling real estate costs have made it a hard task for the average middle class Indian to own a home without the support of a Home Loan.
A Home Loan is the most popular source to finance a home purchase. Before you decide to sign on the dotted line of the Home Loan agreement, it is necessary that you examine the clauses in detail so that you’re not caught unaware in the future. You also need to arrange a guarantor for Home Loan. Interest on the Home Loan, calculated with a Home Loan emi calculator is not the only charge that is attached to a Home Loan. There are other cost involved in Home Loan.
Charges and fees with respect to a Home Loan
* Processing fees
All Home Loan borrowers have to necessarily pay the processing fees levied by the lender. This fee is charged towards verification of documents and other loan related procedures. These charges vary between banks as they have the liberty to fix the processing charges. Usually, most banks and NBFCs charge between 0.25 % to 1.00% of the loan amount as this fee.
The loan processing charges needs to be paid at the time of making the Home Loan application itself and is non-refundable.
* Home Loan insurance
Home Loan repayments in the form of EMIs can take a toll on your monthly finances. It is also a high risk situation for the lender as well. Home Loan insurance cover is taken to cushion against such exigencies. Most banks, especially in case of Home Loans taken in the recent past, have mandated the need for insurance cover. The plan covers only the outstanding loan liability.
* Legal and technical verification charges
After you submit your property documents, the bank’s legal team verifies the authenticity of the documents. Your antecedents and your financial history are tracked to assure that you’re a genuine borrower who has the repayment capacity. A technical verification is conducted to check the project viability in case you’re taking a Home Loan for an under-construction property.
* MODT charges
Memorandum of Deposit of Title deed charges are levied on all Home Loan borrowers. It is an undertaking that you‘re depositing the title deeds on your own volition in return for a loan. This
undertaking needs to be registered, thus needing the payment of stamp duty which is usually 0.1% to 0.2% of the Home Loan.
* Loan conversion fee
If you want to benefit from the falling Home Loan interest rates, you can switch from fixed to floating rate loan. However, the bank will charge a conversion fee/switching fee—about 2% of the outstanding loan is generally charged.
* Prepayment charges
In case you have idle funds and want to make a prepayment, the bank may allow you to do so at some extra cost. Generally, it is around 2% of the outstanding loan and varies between banks. The prepayment charges are applicable only on a fixed rate Home Loan.
The cost of the Home Loan actually increases after taking into account all these costs. After availing the Home Loan, if you default on the EMI payments, you will be levied late charges as well.